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Critical Illness Cover - UK - February 2016

“Sales of individual critical illness policies are once again in decline, and overall product penetration is low. Given the ongoing upward pressure on premiums and the already high cost of cover to the individual, turning the market’s fortunes around will not be an easy task. Providers need to find new ways to promote the product and engage the target audience, as well as designing more straightforward and affordable solutions.”

– Sarah Hitchcock, Senior Analyst – Financial Services

This report looks at the following issues:

  • Getting the price right
  • Helping people identify their own protection needs

The UK market for critical illness insurance is not currently in the best of health. New sales of individual policies have fallen in each of the past three years – wiping out all of the growth achieved during the preceding three years. Product penetration has also declined, and is low relative to the level of consumer need. Mintel’s report investigates the possible reasons for this and considers if, when and how the market might stage a recovery. It also considers whether the recent decline is being experienced by all providers, or whether certain insurers are managing to buck the trend and achieve growth.

Mintel’s market and company analysis is complemented by the results of an online consumer survey, which examines product ownership and barriers to purchase, identifies the most likely factors that could prompt a future purchase and reviews general attitudes toward critical illness cover. For the first time, Mintel also reveals the proportion of adults who have experienced a critical illness, either directly (where they are the sufferer) or indirectly (another family member or close friend is the sufferer).

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Table of contents

  1. Overview

    • What you need to know
      • Products covered in this report
      • Executive Summary

          • The market
            • Declining sales impact on new business premiums
              • Figure 1: Forecast of new individual critical illness premiums, at current prices – Fan chart, 2010-20
            • Providers improve critical illness cross-sale rates
              • Distribution trends: bancassurance channel continues to decline
                • First-time buyer numbers increase, but outlook for mortgage market is uninspiring
                  • MMR’s introduction has not led to higher protection sales in 2015
                    • Key players
                      • A heavily concentrated market
                        • Figure 2: Estimated market shares of the top five providers of new individual critical illness cover, 2013 and 2014
                      • Providers explore ways of making the product more appealing
                        • The consumer
                          • Only 8% of adult internet users are covered
                            • Figure 3: Ownership of protection insurance, by total sample, parents and mortgage holders, December 2015
                          • ‘It’s too dear’ say 40% of the non-insured
                            • Figure 4: Reasons for not having critical illness cover – top seven only, December 2015
                          • Developing a critical illness could put a household under serious financial strain
                            • Figure 5: Ability to manage financially if unable to work due to serious illness, December 2015
                          • A change in fortune is most likely to prompt people to consider the product
                            • Figure 6: Factors which might prompt consideration of the product – top seven only, December 2015
                          • 31% believe the onus is on individuals to ensure their financial security
                            • Figure 7: Agreement with statements about critical illness insurance and the need for financial protection, by those with cover and those without, December 2015
                          • 33% have experience of a critical illness – either directly or indirectly…
                            • Figure 8: Personal experience of suffering a serious or life-threatening illness, December 2015
                          • …while 20% are worried about themselves or another family member becoming seriously ill in the future
                            • Figure 9: Concerns about suffering a serious or life-threatening illness, December 2015
                          • What we think
                          • Issues and Insights

                            • Getting the price right
                              • The facts
                                • The implications
                                  • Helping people identify their own protection needs
                                    • The facts
                                      • The implications
                                      • The Market – What You Need to Know

                                        • Volume sales down by 13% in 2015
                                          • Mortgage term customers more likely to take out critical illness cover
                                            • 90% of critical illness sales in 2015 were generated by advisers
                                              • First-time buyer numbers up, but affordability pressures remain
                                                • MMR yet to exert a positive influence over sales of protection insurance
                                                • Market Size and Forecast

                                                  • Reduction in number of in-force policies
                                                    • 2015 witnesses further drop in new sales
                                                      • Providers increase the cost of cover
                                                        • Figure 10: Volume and value of new individual critical illness sales and average annual premium, 2010-15
                                                      • Best-case scenario: steady premium growth over the next five years
                                                        • Figure 11: Forecast of new individual critical illness premiums, at current prices – Fan chart, 2010-20
                                                      • Volume sales: rapid slowdown in the rate of decline
                                                        • Figure 12: Forecast of new individual critical illness policy sales – Fan chart, 2010-20
                                                      • Significant pressures and challenges remain
                                                        • Figure 13: Forecast of new individual critical illness premiums, at current and constant prices, 2010-20
                                                      • Forecast methodology
                                                      • Market Segmentation

                                                        • The vast majority of policies are sold as a rider benefit
                                                          • Figure 14: New individual critical illness sales – rider benefit versus standalone policies, 2010-15
                                                        • Mortgage term customers are now twice as likely to take out a critical illness rider as protection term customers
                                                          • Figure 15: Critical illness (CI) rider benefits as a proportion of new individual term assurance business, 2010-15
                                                      • Channels to Market

                                                        • Decline in critical illness rider sales coming via advice channels…
                                                          • Figure 16: Volume sales of new term insurance policies with individual critical illness riders, by channel, 2013-15
                                                        • …although intermediaries still account for 90% of sales
                                                          • Figure 17: Proportional distribution of new individual term critical illness riders, by channel, 2013-15
                                                        • Decline of the bancassurance channel
                                                        • Market Drivers

                                                          • Home purchase loans down 1% in 2015
                                                            • Figure 18: Volume of house purchase loans, by type of borrower, 2006-15
                                                          • Changing tenure patterns
                                                            • Figure 19: UK housing stock, by tenure, 1993-2013
                                                          • Living longer means there’s a greater chance of ill health in later years
                                                            • Cancer is the top reason for claiming on a critical illness policy
                                                              • Total cost of critical illness claims grew 6% in 2014
                                                                • Figure 20: Summary of critical illness and total permanent disability (TPD) claims paid and proportion of declined claims, 2013 and 2014
                                                              • Fall in proportion of declined claims due to non-disclosure and definition of claim not being met
                                                              • Regulatory and Legislative Changes

                                                                • Solvency II Directive comes into force
                                                                  • MMR has yet to make any discernible difference to protection sales
                                                                  • Key Players – What You Need to Know

                                                                    • A heavily concentrated market
                                                                      • Insurers adopt diverging strategies
                                                                        • Paltry amount spent on above-the-line advertising
                                                                        • Market Share

                                                                          • Larger players bucked the market trend in 2014
                                                                            • Figure 21: Volume sales and market shares of the top five providers of new individual critical illness cover, 2013 and 2014
                                                                          • Legal & General’s market-leading position under threat
                                                                            • Four of the top five grew sales volumes and market share in 2014 – bucking the overall market trend
                                                                            • Competitive Strategies

                                                                              • Shifting market dynamics
                                                                                • Increasing market consolidation
                                                                                  • Aviva’s acquisition of Friends Life means the combined group can challenge Legal & General’s market-leading position
                                                                                    • AIG acquires Ageas Protect and rebrands as AIG Life
                                                                                      • Canada Life re-enters individual protection market
                                                                                        • Distribution developments
                                                                                          • Introducing the innovative new platform, UnderwriteMe
                                                                                            • Scottish Widows re-enters adviser market with protection platform
                                                                                              • LifeQuote launches protection quotes to tackle cash flow pressures
                                                                                                • Product development
                                                                                                  • Providers seek to make the product more attractive by enhancing cover
                                                                                                    • Others seek to simplify propositions in order to provide cheaper cover
                                                                                                    • Advertising and Marketing Activity

                                                                                                      • Critical illness insurers make limited use of above-the-line advertising
                                                                                                        • Figure 22: Total above-the-line, online display and direct mail advertising expenditure on life protection products, 2011-15
                                                                                                      • Reasons for the lack of adspend
                                                                                                        • Nielsen Media Research coverage
                                                                                                        • The Consumer – What You Need to Know

                                                                                                          • Only 8% of adult internet users are covered
                                                                                                            • ‘It’s too dear’ say 40% of the non-insured
                                                                                                              • Developing a critical illness could put a household under serious financial strain
                                                                                                                • A change in fortune is most likely to prompt people to consider the product
                                                                                                                  • Less than a third believe the onus is on them to ensure their own financial security
                                                                                                                    • 33% have experience of a critical illness – either directly or indirectly
                                                                                                                    • Ownership of Protection Insurance

                                                                                                                      • Only 8% of UK adults have critical illness cover
                                                                                                                        • Figure 23: Ownership of protection insurance, December 2015
                                                                                                                      • Take-up increases significantly among parents and mortgage holders
                                                                                                                        • Figure 24: Ownership of protection insurance, by parents, mortgage holders and life insurance policyholders, December 2015
                                                                                                                      • Broaden the product’s appeal to non-mortgage holders
                                                                                                                      • Reasons for Not Having Cover

                                                                                                                        • It’s too expensive
                                                                                                                          • Figure 25: Reasons for not having critical illness cover, December 2015
                                                                                                                        • There’s no benefit to having it
                                                                                                                          • A lack of trust remains a key barrier
                                                                                                                            • Other reasons are less commonly expressed
                                                                                                                              • Parents are less likely to say they can’t see the benefit of having cover
                                                                                                                                • Figure 26: Reasons for not having critical illness cover, by parents and mortgage holders, December 2015
                                                                                                                            • Potential Financial Impact of Ill Health

                                                                                                                                • Figure 27: Ability to manage financially if unable to work due to serious illness, by all non-insured, parents and mortgage holders, December 2015
                                                                                                                              • 35-44-year-olds are at most risk
                                                                                                                              • Factors That Might Prompt Purchase

                                                                                                                                • 25% of the non-insured rule out ever taking out cover
                                                                                                                                  • Figure 28: Factors that might prompt consideration of the product, December 2015
                                                                                                                                • Improved affordability could increase consideration
                                                                                                                                  • Simplifying policies could aid consumer understanding
                                                                                                                                    • Promoting fixed premiums could also widen appeal
                                                                                                                                      • Lifestage events can provide the catalyst for buying cover
                                                                                                                                      • Attitudes toward the Product

                                                                                                                                        • 29% of the non-insured agree that individuals have a responsibility to protect their own future financial security…
                                                                                                                                          • Figure 29: Agreement with statements about critical illness insurance and the need for financial protection, by those with cover and those without, December 2015
                                                                                                                                        • …while 32% think it’s better to save your money than pay for insurance you may never need
                                                                                                                                        • Experience of Serious and Life-threatening Illnesses

                                                                                                                                          • 17% of UK adults have either suffered a serious illness themselves or has a partner who has…
                                                                                                                                            • Figure 30: Personal experience of or concerns about suffering a serious or life-threatening illness, by those with cover and those without, December 2015
                                                                                                                                          • …which could make them potentially ineligible for critical illness insurance
                                                                                                                                          • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                                                                            • Product definitions
                                                                                                                                              • Intermediary market definitions
                                                                                                                                                • Abbreviations
                                                                                                                                                  • Consumer research methodology
                                                                                                                                                  • Appendix – Market Size and Forecast

                                                                                                                                                    • Total market value forecast – Best- and worst-case scenarios
                                                                                                                                                      • Figure 31: Forecast of new individual critical illness premiums – Best- and worst-case scenarios, at current prices, 2015-20
                                                                                                                                                    • Total market volume forecast – Best- and worst-case scenarios
                                                                                                                                                      • Figure 32: Forecast of new individual critical illness policy sales – Best- and worst-case scenarios, 2015-20
                                                                                                                                                    • Forecast methodology
                                                                                                                                                    • Appendix – Other Relevant Regulatory and Legislative Changes

                                                                                                                                                      • Other recent regulatory and legislative developments impacting on the protection industry
                                                                                                                                                        • Government initiatives to help homebuyers
                                                                                                                                                          • Stamp duty reform
                                                                                                                                                            • Help to Buy

                                                                                                                                                            Companies Covered

                                                                                                                                                            To learn more about the companies covered in this report please contact us.

                                                                                                                                                            Critical Illness Cover - UK - February 2016

                                                                                                                                                            US $2,583.33 (Excl.Tax)